Home warranties

Start with the legal category, because it explains everything else. Federal law defines a service contract as "a contract in writing to perform, over a fixed period of time or for a specified duration, services relating to the maintenance or repair (or both) of a consumer product." It is a contract you buy separately, after or apart from the purchase of the item, which is exactly what distinguishes it from a manufacturer's warranty under the FTC's rules. It is a promise to perform services, bounded by whatever the document says.

That means the contract is the product. Not the brochure, not the sales call, not the star rating. The exclusions section, the coverage caps, and the definitions of "pre-existing condition" and "normal wear and tear" are where every disputed claim is decided. If you cannot get the full sample contract before you pay, do not buy.

The honest financial framing: at a national average around $600 a year plus $75 to $125 per service visit, a home warranty is a way of converting an unpredictable repair bill into a predictable subscription - while accepting caps on what the company will pay and giving up your choice of contractor. For homeowners with cash reserves and older, well-documented equipment, self-insuring is frequently the better deal. For homeowners with no reserve and an unfamiliar house, the smoothing has real value.

One structural point worth knowing before you sign: most of these contracts contain binding arbitration clauses, and under the Federal Arbitration Act a written arbitration provision in a contract involving commerce is "valid, irrevocable, and enforceable" except on grounds that would void any contract. If you sign it, you are very likely giving up the right to sue in court over a denied claim. That is not a scandal - it is standard - but you should know you did it.